Vaccine Finance and Epidemic Risk – IMF F&D
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- Authors: DAVID E BLOOM, DANIEL CADARETTE, DANIEL L TORTORICE
- Published: September 2, 2020
Overview
- The world faces a sustained threat of outbreaks and epidemics; COVID-19 continues to rage in many locations and the emergence of other known and unknown pathogens remains a material risk.
- Biopharmaceutical countermeasures to prevent or quickly react to emerging infectious diseases have tremendous value; a growing body of research supports that the full societal value of vaccination far exceeds what traditional economic evaluations capture.
- Reliance on population immunization requires substantial expenditure on R&D, manufacturing capacity, and delivery.
- The article frames the problem as a cycle of “panic and neglect” in investment for diseases of epidemic potential.
Challenges in vaccine R&D, manufacturing, and delivery
- Market failures and incentives
- Current vaccine R&D and manufacturing rely substantially on the profit motive of major multinational pharmaceutical companies; this model produces many vaccines for endemic diseases affecting large numbers in wealthy countries but is less effective for diseases that primarily affect lower-income countries and for individually low-probability, high-severity epidemic threats (examples: Ebola-like hemorrhagic fevers, Severe Acute Respiratory Syndrome (SARS), Middle East Respiratory Syndrome, Zika).
- The world’s failure to produce high-quality vaccines against tuberculosis, malaria, and human immunodeficiency virus is emblematic of system shortcomings.
- Vaccine nationalism during the COVID-19 pandemic threatens international cooperation and equitable allocation.
- Cost, time horizons, and risk
- Estimates of total R&D costs range from roughly $200 million to $500 million per successful vaccine, inclusive of sunk costs for failures.
- Building and maintaining vaccine manufacturing facilities could add another $500 million to $1.5 billion to the total (Plotkin and others 2017).
- It is not uncommon for more than a decade to elapse between inception of initial research and the end of phase III clinical trials.
- A 2013 study found that, on average, 6.4 years elapsed between marketing authorization for new vaccines and population access in European countries.
- Vaccine sales generate roughly $40 to $60 billion in annual revenue; the global vaccine market accounts for approximately 3–5 percent of the total global pharmaceutical market.
- Demand-side constraints and externalities
- Demand for epidemic vaccines is uncertain and contingent on outbreaks unless advanced stockpiling agreements exist.
- Growing vaccine hesitancy threatens to suppress demand.
- Vaccination produces positive externalities (interruption of transmission, reduced antimicrobial resistance, potentially improved macroeconomic performance), and vaccine R&D knowledge is a global public good, leading to free rider problems.
- Political economy and collective financing barriers
- Democratically elected officials may lack incentives to approve investments with unlikely visible returns during their terms.
- Lack of public perception of epidemic threat and lack of trust in scientific and political authority can undermine preparedness efforts.
- Central decision-making faces the question of effectively identifying promising vaccine candidates relative to market forces.
Solutions and policy recommendations
- Accelerate R&D and manufacturing capacity
- Increase investment in cutting-edge vaccine platforms (example cited: mRNA technology) to accelerate development.
- Governments and international bodies such as the WHO can formalize special regulatory pathways to allow accelerated approval of vaccine candidates during epidemics while ensuring basic safety requirements.
- Governments and international funders (Gavi, the Gates Foundation, the Wellcome Trust) could contract with pharmaceutical companies for direct access to manufacturing facilities during emergencies.
- An international body such as the WHO or a novel technical advisory council on infectious disease threats could expand the blueprint list of priority pathogens to develop a global budget and action plan for financing relevant R&D and de-risking manufacture (Bloom and Cadarette 2019).
- Strengthen collective financing and institutions
- Consortia of wealthy countries (examples: the Organisation for Economic Co-operation and Development, the Group of Seven, the European Union) could commit several years of earmarked funds for international organizations to finance R&D, production, and purchase of vaccines against emerging pathogens.
- Increase funding to CEPI, enlarge its pool of sponsors, and expand its authority to sponsor development of a greater number of vaccine candidates and support developers into (and perhaps through) phase III trials.
- Condition public grant funding of early R&D on price ceilings or the possibility of compulsory licensing to improve affordability and access for people in poor countries.
- Address political economy and public persuasion
- Frame investment in vaccines and preventive measures as socially valuable insurance or analogous to stockpiling a standing army to respond to unknown threats, to persuade policymakers and the public and promote accountability.
- De-risk private investment
- Governments or philanthropic organizations can provide guarantees that de-risk investment in successive stages of clinical trials and manufacturing capacity to overcome firms’ incentives to delay R&D projects with uncertain returns (reference to Pindyck 1991).
Key findings and statistics (exact figures preserved)
- R&D cost estimates: roughly $200 million to $500 million per successful vaccine (inclusive of sunk costs for failures).
- Manufacturing facility costs: another $500 million to $1.5 billion.
- Time from research inception to end of phase III: more than a decade is not uncommon.
- Average lag from marketing authorization to population access in Europe: 6.4 years (Blank and others 2013).
- Global vaccine market revenue: roughly $40 to $60 billion in annual revenue.
- Vaccine market share of total pharmaceuticals: approximately 3–5 percent.
Conclusion / Public intervention needed
- Because vaccine R&D and administered doses produce global public goods and positive externalities, the market tends to undersupply them.
- Public intervention is needed to support R&D, manufacture, financing, and delivery—likely via collective financing and regulation of existing institutions.
- Strengthening systems for vaccine development, manufacture, and delivery before the next emerging pathogen gains a foothold is imperative.
Source: Vaccine Finance and Epidemic Risk – IMF F&D (F&D Magazine: "An Ounce of Prevention", DAVID E. BLOOM, DANIEL CADARETTE, DANIEL L. TORTORICE, September 2020)
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- Vaccine Finance and Epidemic Risk – IMF F&D